The decision to refinance an existing mortgage involves several factors. These include how long you plan to stay in the home, the current terms of your loan and how they will change, and whether the benefit is worth the cost of acquiring a new loan. Talking over these issues with an experienced lender can give you some insight as to whether a refinance is the right choice for you.
Once you’ve decided to refinance, one of the quickest and easiest loan programs available for those already holding a VA loan is the VA’s Interest Rate Reduction Refinance Loan, or IRRRL (“Earl”). Lenders sometimes refer to this program as a VA “streamline” due to the ease of processing the loan. The loan isn’t for everyone—before you consider an IRRRL, be sure you know both the benefits and the requirements.
Benefits to the VA IRRRL Streamline program:
- A Certificate of Eligibility is not required. As long as you are using the COE (Certificate of Eligibility) on the property you wish to refinance, you do not need to apply for the COE again.
- An IRRRL may be done with “no money out of pocket.” The only cost required by the VA is a funding fee of one-half of one percent which may be paid in cash or included in the loan. By including all costs in the new loan or by making the new loan at an interest rate high enough to enable the lender to pay the costs. Do be aware that rolling the cost of the loan into the loan itself means that your loan balance will be higher.
- No appraisal. In most instances, since the program is VA to VA, you are able to use the existing appraisal on the home.
- You must be current on your mortgage and not have any more than one 30-day late payment within the past 12 months and no such late payments in the previous six months.
- Must be VA to VA. The existing loan must be a VA mortgage as the streamline is a “VA to VA” only product. You must either be lowering your monthly payment as a result of the refinance or switching from an adjustable or hybrid loan to a fixed rate loan.
- No cash out is allowed with a streamline, only closing costs can be rolled into the loan.
IRRRLs can be great choices in the right situation. They can reduce risk for those on adjustable rate mortgages by moving them to a fixed rate mortgage. A lower interest rate may mean a lower payment. However, the total loan amount may increase if you roll the closing costs into the loan, and you may also extend the term of your loan. Want to learn more? Visit our VA loans page or give us a call today. If you are considering an IRRRL, or any refinance of your current mortgage, we would love to chat with you.